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Official Opinion 98-10

Official Opinion 98-10

May 14, 1998

To:

Commissioner Department of Community Affairs

Re:

The Development Authority of Fulton County has the power under the Development Authorities Law (O.C.G.A. ¿ 36-62-1 et seq.) to enter into lease transactions and pay the cost of tenant improvements for a project as defined by the Development Authorities Law. A State local assistance grant and the use of such grant by the Development Authority for such a project does not contravene the provisions of Article VII, Section IV, Paragraph VIII of the Constitution of the State of Georgia of 1983.

You have asked two questions about the powers of the Development Authority of Fulton County, which was created under Chapter 62 of Title 36 of the Official Code of Georgia Annotated (the “Development Authorities Law”). The first question is whether the Development Authority has the power under the Development Authorities Law to enter into particular lease transactions and pay the cost of certain tenant improvements. The second question is whether such transactions and payment will violate Article VII, Section IV, Paragraph VIII of the Constitution of the State of Georgia of 1983, which generally prohibits the pledge or loan of the credit of the State to “any individual, company, corporation, or association” (the “pledge of credit clause”).

The transactions you have described involve the sublease by Porsche Enterprises Incorporated (“PEI”) to the Development Authority of certain premises located on two floors of an office building in Atlanta, Georgia. The Development Authority proposes to sublease these same premises to Porsche Cars North America, Inc. (“Cars”). The lease arrangements will require the Development Authority to pay the costs of certain interior tenant improvements which are required for the use and occupancy of the premises by Cars as its United States headquarters facility.

The obligation of the Development Authority to pay the costs of the tenant improvements will be a limited obligation payable solely from a local assistance grant to be made by the State of Georgia to the Development Authority through the Department of Community Affairs in the amount of $525,000 (the “grant”). The tenant improvements will constitute capital expenditures and are not expected to have an effective useful life exceeding the term (including renewal options) of the Development Authority’s tenant sublease with PEI.

Under the sublease between the Development Authority and Cars, Cars will be obligated to make rental payments to the Development Authority sufficient in time and amount to enable the Development Authority to discharge its tenant obligations under the sublease between PEI and the Development Authority. The rental obligations of the Development Authority under its tenant sublease with PEI will be limited obligations payable solely from rent received by the Development Authority from its sublease of the premises to Cars.

The answer to your first question requires a review of the Development Authorities Law. The Development Authorities Law provides that the Development Authority may receive and administer grants. O.C.G.A. § 36-62-6(4). The Development Authority is also empowered to acquire real or personal property as part of any project and to lease real or personal property for project purposes. O.C.G.A. §§ 36-62-6 (5), (6). The Development Authority may “construct, acquire, own, repair, remodel, maintain, extend, improve, and equip projects located on land owned or leased by the authority” and may pay the cost of any such project from contributions. O.C.G.A. § 36-62-6 (12). See also O.C.G.A. § 36-62-7 (requiring projects to be leased or sold to, or managed by, one or more persons, firms or private corporations).

Under the Development Authorities Law, the cost of a project includes “all costs of construction, purchase, or other form of acquisition” together with “all costs of real and personal property.” O.C.G.A. §§ 36-62-2 (2)(A), (B). The word “project” includes “[t]he acquisition, construction, installation, modification, renovation, or rehabilitation of land, interests in land, buildings, structures, facilities, or other improvements and the acquisition, installation, modification, renovation, rehabilitation, or furnishing of fixtures . . . or other property of any nature whatsoever used on, in, or in connection with any such land, interest in land, building, structure, facility, or other improvement, all for the essential public purpose of the development of trade, commerce, industry, and employment opportunities.” O.C.G.A. § 36-62-2(6)(N). You have furnished with your request letter a copy of a resolution adopted by the Development Authority which declares that the involved lease transactions and expenditures for tenant improvements to be made by the Development Authority “will develop and promote for the public good and general welfare trade, commerce, industry, and employment opportunities in Fulton County, will increase or maintain employment in the territorial area of the Authority, and promote the general welfare of the State of Georgia.”

The lease transactions and expenditures for tenant improvements to be made by the Development Authority fit within the project definition and the powers given to the Development Authority under the Development Authorities Law. Therefore, the Development Authority is authorized by the Development Authorities Law to receive and use the grant, to enter into the lease transactions and to pay the cost of the tenant improvements.

With regard to the pledge of credit clause, the grant here involved is not made to a private corporation, but rather to a public corporation specifically authorized to receive and use the grant for the project described. Paragraph III of Section III of Article VII of the Constitution (the “grants clause”) authorizes the State to make grants to local jurisdictions. Act No. 518 (H.B. No. 1167) adopted at the 1998 Regular Session of the General Assembly makes a “specific, mandatory” appropriation to the Department of Community Affairs for the grant to the Development Authority. See O.C.G.A. § 50-8-8 (a) (requiring the Department of Community Affairs to make to qualified local governments those grants which are specified by amount, recipient and purpose in an appropriation to the Department). In light of the specific authorization for local grants in the grants clause of the Constitution, the powers given to the Development Authority under the Development Authorities Law and the proposed use of the grant funds by the Development Authority for purposes of a project as defined by the Development Authorities Law, the grant and the use of the grant by the Development Authority does not contravene the pledge of credit clause.